The Top 25 Gulf Cooperation Council (GCC) banks have posted healthy financial performances in 2002, revealed Gulf Banking Consultants (GBC) in a soon-to-be-released report.
The banking sector in particular benefited from a low interest rate environment that enhanced customer ability to borrow and reduced the extent of provisions as the debt-servicing ability of existing customers improved.
The banks also enjoyed an above average spread as interest rates on loans declined at a slower rate than interest rates on deposits in the backdrop of this supportive business environment.
According to the report, Saudi banks took top four positions on the Capital Size performance indicator. Saudi American Bank (SAMBA) maintained its number one position with $2.64 billion followed by Riyad Bank at $2.42 billion. National Commercial Bank (NCB), making its financials public after many years, secured third place with $2.38 billion.
Return on Equity (ROE) rankings were given prominence as a performance indicator and saw NCB, the new entrant on the Top 25 list, deliver an impressive 32 percent ROE in 2002 beating competition by a mile. Saudi Hollandi Bank took second place with Kuwait Finance House coming in at number three with 21.8 percent. SAMBA dropped six places from first to seventh. Again, Saudi banks dominated the ROE rankings due to large amounts of non-interest bearing deposits where blended interest costs were much lower than for non-Saudi banks.
According to the report, the message that emerges is that banks have to run to standstill. To maintain their current rankings banks have had to show five to 15 percent annual increase in profits. The analysis shows that capital leverage among the Top 25 GCC banks vary considerably but is generally well below those of global banks.
On average, the balance sheets of GCC banks are leveraged around nine times their shareholders funds. In comparison, the average capital leverage of international banks such as Citigroup and HSBC for example is much higher and close to 13.
Notwithstanding the overall lower level of capital leverage, some GCC banks do a better job in capital and risk management than others. NCB is a good example of a bank that enhances its shareholder value by optimal utilization of capital through leverage. Its 2.38 percent ROA is very similar to Saudi American Bank and Al-Bank Al-Saudi Al-Fransi. However, NCB’s 32 percent ROE is substantially higher than its two Saudi counterparts because of a much higher capital leverage achieved by its large market share and higher asset base.
Where GCC banks are encouraged to reduce their dependence on Net Interest Income (NII), Burgan Bank figures indicate 56 percent alternative revenue sources while Al-Rajhi Bank and Qatar National Bank show the lowest Non-NII income of 15 percent. The GCC banks average income diversification stands at 24 percent, less than half when compared to the Top 10 international banks index of 53 percent.
An important driver of performance improvement is a bank’s ability to achieve growth in revenue. With 28 percent growth in revenue, Bank Muscat (BM) tops the list although a part of this growth was achieved as a result of an asset acquisition. On the other end of the spectrum, Commercial Bank of Kuwait (CBK), Abu Dhabi Commercial Bank (ADCB) were at the bottom of the rankings with declines in revenue of six percent and five percent respectively.
Market leaders like SAMBA, National Bank of Kuwait (NBK) and Al-Rajhi Bank at very nearly the bottom of the list in terms of revenue growth. This is particularly intriguing given GBC's remarks in its last year's Top 25 GCC Banks Report where they identified these three banks as examples of banking stars and commented on the challenges facing these banks in terms of revenue growth.
The report ranks the top banks in the GCC on the basis of several financial performance indicators (2002) that include capital size, ROE, net profits, ROA, leverage, revenue diversification and growth, expense ratio and economic value creation. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
